Puerto Rico Proposes Balanced Budget, Bonds Gain

By Michael Aneiro

Puerto Rico today presented a balanced budget proposal for 2015, and it was enough to get the attention of both traders and rating agencies. First, Puerto Rico’s recently issued $3.5 billion in 21-year bonds gained about 2.5 points today to trade most recently at 92.5 cents on the dollar, close to their original issue price of 93 cents. Second, the proposal prompted this response from Moody’s:

The 2015 budget proposal appears to be a positive development for the commonwealth, based on its effort to move toward structural balance, its call for spending restraint and the avoidance of new deficit financings. Proposals aimed at restraining costs in the commonwealth’s electric and water utilities, as well as other public corporations, could eliminate historic reliance on support from the commonwealth’s general fund. While the budget may constitute a significant, positive step if enacted, this financial plan still leaves the commonwealth with many economic and financial challenges.

Today David Chafey, chairman of the Government Development Bank for Puerto Rico, and Melba Acosta Febo, Puerto Rico’s Treasury Secretary, issued the following statement:

Presenting a balanced budget a year ahead of the initial target is an enormous achievement and a great step forward for Puerto Rico’s economic growth and fiscal health. Over the last 15 months, this administration has demonstrated its willingness to address long-standing fiscal and economic challenges by taking swift and decisive action to strengthen the Commonwealth’s finances, support the independence of Puerto Rico’s public corporations, and diversify the Commonwealth’s economy. We applaud the Governor’s actions with respect to this budget, and look forward to supporting its approval and effective implementation over the course of the fiscal year.

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